Designing Your Fulfillment Strategy: 3PL, FBA, In-Store Pickup & More

What’s the secret to your big box competitor’s fulfillment success? And how can you emulate it on a smaller, more affordable scale?

On Monday, I wrote about optimizing supply chains for profit and the amount of data gathering and analysis that goes into building a world-class supply network.

Today, we’ll look into using that analysis to optimize fulfillment centers and new ways to organize your last-mile deliveries.

Optimizing Fulfillment Centers

Amazon, Google, Walmart, Best Buy and other big players all have hundreds of fulfillment centers around the world. Having this huge network enables them to save money and offer faster shipping times.

For merchants that are not quite at Amazon or Walmart level, it’s hard to compete on size and sales volume. Software, on the other hand, is something that is available to all.

Optimization software looks at your historical sales, average product weight, shipping times, popular shipping routes and more. After running the software, you’ll end up with a list of strategically placed locations based on customers actual purchasing habits.

Add to this the data from your supply network overview, specifically economic analysis and you’ll be well placed to revamp your fulfillment process.

By using optimization software, one nutraceutical company learned that by expanding into three separate strategically placed warehouses instead of one, they would be able to save on average $2.72 per order just on shipping alone. This translated into savings of $31,500 over a three-month period.

Still, even by optimizing locations for your fulfillment centers, you have to build up your operations in every new center that you open.

If you already run a warehouse network and are looking to test the waters in expanding to new markets, one solution is to hand over parts of your logistics to people that know that stuff well. Namely, third-party logistics (3PL) companies.

Defining Third-Party Logistics (3PL)

If you're unfamiliar with the concept of third-party logistics, Casandra Campbell, editor of the Shopify blog, has written a comprehensive beginner's guide to third-party logistics that is a must read on the subject.

Many Shopify Plus merchants rely solely on 3PL because it has allowed them to focus on expanding their core business while the logistics specialists handle warehousing, packing and fulfilling orders. Third party logistics is especially critical for young companies that are seeing hyper-growth because it allows them to get products out to their customers without having to worry about all of the labor that goes into fulfilling orders.

It's also common for merchants to get hit with restocking fees, which in turn, makes you understandably apprehensive about offering free returns, making it harder for the 93% of people who say a customer-friendly return policy will increase their likelihood of buying from a company they don't know.

To build a truly optimized fulfillment strategy, however, businesses should not rely solely on 3PL or their warehouse network, but instead, strive to find a balance that uses both to ensure a quality brand experience, while also getting items to customers faster.

For example, top selling, evergreen items may be shipped from your warehouses where you can pay careful attention to the details that will ensure a high-quality visceral experience of your brand.

Select products that need to ship quickly to high-volume local markets with low return rates, on the other hand, may be better handled by a 3PL provider in order to reach the customer even faster.

Evaluating Fulfillment by Amazon (FBA)

FBA allows you to take advantage of Amazon’s massive logistical network by sending your merchandise to an Amazon warehouse for future orders fulfillment. This allows you to take advantage of free shipping by Amazon Prime, plus easy shipments to Alaska, Hawaii, Puerto Rico and Army postal services all without surcharges or delays.

By using FBA, your merchandise is also protected by Amazon. For instance, if it gets lost at Amazon, or a forklift drives over it, or postal services lose your package, you’ll always get reimbursed and don’t have to worry about it.

Just like 3PL, It’s not all rainbows and butterflies though. Amazon naturally charges for all the services it provides to its FBA program merchants. Most of the fees are within reason but it can still get overwhelming.

Amazon is also VERY strict on how your merchandise has to be shipped and labeled in order to participate in the program. Inbound shipping delays are not a rarity. Your merchandise might arrive at an Amazon facility in two days, but that doesn’t mean it’ll be online in the same timeframe.

Something to consider is also fulfillment outside of the Amazon ecosystem.The FBA program supports multi-channel fulfillment. However, handling fees for orders that are coming outside of planet Amazon can be more than four times more expensive.

It can quickly add up when you start getting more and more orders from non-Amazon sales channels., especially when you’re selling lower ticket merchandise.

Completing the Last Mile

Another factor to consider about fulfillment centers, apart from warehouse space, is the question of delivery. With outsourced fulfillment (Think Amazon FBA or 3PL providers), there’s very little involvement from your side and thus there’s not much that you can directly optimize after the merchandise has been packaged and labeled for delivery by your partner(s).

In the case of operating your own fulfillment centers, it’s about choosing the right partners that will take care of delivering packages from the warehouse into your customer's’ hands. This process is often referred to as the last mile.

Timewise, it usually takes three to six days for the packages to arrive at a customer’s doorstep after they complete their order online. That includes one day for processing, plus two to five days for delivery depending on your location.

Sure, you can streamline the processing time to offer same-day pick-up. But this still leaves the transit time which is difficult to cut down on without a major investment.

Just ask Amazon. The company recently launched same-day delivery in 14 metropolitan areas. Before this bigger launch, it was only offered in specific cities, and it took them years to build up the needed fulfillment network. If you’re on Amazon FBA program, great, you can take advantage of this service. If not...

There’s a clear gap between what consumers want and what merchants are willing to offer. Luckily, there’s a smarter and cheaper way than building out huge fulfillment networks around big metro areas.

Same-Day Delivery the Smart Way

The smart way of organizing same-day delivery is to use on-demand delivery services like UberRUSH, Postmates, Google Express and others for your deliveries. Because of their on-demand nature, these companies are able to make deliveries super quick. In most cases, the turnaround time is incredibly fast.

It does come with a few caveats, though.

To make it work the most reliably, you should have your own stores, warehouses, or fulfillment centers in the areas in which you want to offer this service.

Another consideration is what products you’re going to offer with fast delivery. Preparing merchandise for delivery takes time and the more unusual the merchandise, the more time it takes to prepare it.

As the emphasis is on speed, think about offering products that are either already pre-packaged, or at the very least, extremely easy and fast to prep for shipping.

When it comes to choosing the right markets, a great deal of data mining and analysis has to go into figuring out where your orders are coming from, and what’s the feasibility of offering same-day deliveries. Your local market and areas in which you already have big presence in terms of being able to fulfill high volume orders is a good place to start.

While offering same-day delivery requires careful planning and adapting the way your fulfillment centers are set up, another shipping method that offers more flexibility than traditional front porch delivery is using parcel lockers for in-store pickup.

In-store Pickup with Parcel Lockers

According to Forrester, 50% of customers expect merchants to offer a buy online and pick up in-store service. It’s great for the customer as this enables them to choose a time that suits them, and not the UPS driver, to pick up their online orders.

For merchants, this presents new operational and logistical challenges. In-store pick up requires retailers to have up-to-the-moment inventory data, sufficient store staff and a designated area where shoppers can pick up purchases -- just to name a few.

If you don’t have a significant offline presence, this creates a problem. Customers want to pick up packages at the times and locations that suit them. But without a strong offline presence, it’s impossible to pull off.

This is where self-service parcel lockers come into play.

They offer the same kind of freedom for customers to choose their own pickup time and location without needing to visit physical stores. These self-service lockers can be located at convenience stores, petrol stations, and similar sites.

Keep in mind that their availability depends on the location. So, if the locker is in a place which is open 24/7, customers can access your package whenever they need it.

The way it works is that you receive either a one-time pin code or a scannable barcode which you input/scan at the locker. After doing that, the door of the locker with your package automatically opens, and you can retrieve your stuff. Easy!

From a merchant's point of view, you don’t need to make major changes in how you operate. That is because many major logistics services providers - such as the UPS Access Point - already have their own parcel lockers so it can be as easy as adding the delivery option for customers at checkout. (note: Shopify Plus customers can do this by modifying the checkout.liquid template)

Even if your logistics partner doesn’t have a locker network in-place, it’s relatively easy to add one from another company because the big players in this space have years and years of experience in this field. So getting things up and running is mostly straightforward.

Final Thoughts

Logistics and especially warehouses and fulfillment centers can be a pain to get right. Before you start dumping more money into it, you need to have a good overview of how exactly your logistical network works.

If you're relying on only one method, you're potentially hampering your growth without even realizing it. Everything from how fast you can get your products to your customers, to what their experience is like once they open it, plays a significant role in whether you knock their socks off or fade into the background as "just another online purchase."

The goal is to find the right balance of fulfillment options that will protect your margins as well as your customer experience.